REA Group Considering £4.4bn Buyout Offer For Rightmove

Australian portal giant REA Group is considering a £4.4 billion takeover offer for the UK's market-leading real estate portal, Rightmove, with Deutsche Bank acting as the financial advisor to REA.

The offer would create arguably the world's first truly global real estate giant.

The terms of the deal would involve cash plus shares for the entire issued and to-be-issued share capital of Rightmove.

REA has until 30th September to publicly announce whether it will make, or not make, an offer to Rightmove. REA said it had not approached Rightmove nor had any discussions with the London-based company over a potential takeover bid.

Rightmove's investor relations page published a statement this morning saying:

REA confirms that it is considering a possible cash and share offer for the entire issued and to be issued share capital of Rightmove. REA has not approached, nor had any discussions with, Rightmove regarding any potential offer.

The REA Board believes that there are clear similarities between REA and Rightmove in terms of their leading market positions in the core residential business, continued expansion and innovation of offerings across adjacent segments, leading audience share and strong brand awareness, as well as highly aligned cultural values.

REA sees a transformational opportunity to apply its globally leading capabilities and expertise to enhance customer and consumer value across the combined portfolio and to create a global and diversified digital property company, with number 1 positions in Australia and the UK.

The REA Board believes the enlarged group would represent a highly attractive investment opportunity for both REA and Rightmove shareholders, combining robust growth with strong margins and significant cash generation, enabling continued capital appreciation and shareholder returns. REA therefore considers that a combination of the two businesses would provide a significant opportunity to unlock shareholder value.

There can be no certainty that an offer will be made, nor as to the terms on which any offer may be made. REA shareholders do not need to take any action at this time.

Simon Baker, founder of Online Marketplaces and former CEO at REA, commented:

"The news today is all about the REA Group's potential take over bid for Rightmove. I read this and did have a chuckle to myself. Just over 16 years ago I presented (along with former News International CEO Les Hinton) to Rupert Murdoch that the REA Group and News Group International should acquire Rightmove before it listed on the LSE.

"The underlying rationale was strong especially as the REA Group co-owned (with News International) the relatively small Propertyfinder at the time. While the proposal was initially well met, it failed to get the full support of News Corp and Rightmove went on to list on the LSE.

"The news today has not been met with enthusiasm on the Australian market with the REA Group's share price dropping 8 percent on the news and recovering slightly to close 5.3 percent down. Of course the Rightmove share price jumped 20+ percent on the announcement.

"Of course this is still conjecture and the REA Group has until the 30 September to confirm an offer."

Malcolm Myers, founder at European Internet Ventures, commented:

"A bid was not completely unexpected. Until the news from REA, Rightmove had been trading at just 14x 2023 Operating Profit, and more than 25% below their all time high of December 2021. Compare this to Scout24 (17x) or of course Hemnet (36x), or the EBITDA multiples at which some of the recent Private Equity deals are rumoured to have taken place at, and this looks cheap.

"Rightmove’s share price has been depressed ever since CoStar acquired OnTheMarket. REA has the breadth of insights - including into the US market - to know that—despite the value add CoStar brings to OTM in product, unique data and sheer marketing spend—they are unlikely to challenge Rightmove’s position anytime soon. Zoopla is more likely to be feeling the heat.

"The tougher question is how REA can add value to Rightmove. In the short term it is hard to see any major synergies. But it is also clear that as classifieds players invest more heavily in AI-driven, data rich products, the costs of product and tech are likely to increase. This is an area where REA and Rightmove could pool resources and do more for less.

"The UK market stands out in Europe as having, at about 1.25%, by far the lowest agent commission rates. REA may well think that such a market is ripe to implement their vendor pays model. Interestingly, this is the monetisation model that is fuelling Hemnet’s enviable EBIRDA multiple."

Rightmove and REA in context

Rightmove is one of the biggest names in global real estate and certainly one of the most powerful and successful real estate portals of all time.

It is highly profitable, nigh on untouchable by its rivals (Zoopla and OnTheMarket), and appears to get stronger every year.

Fittingly, you could swap the names Rightmove and REA and get much the same story.

REA is another example of a hyper-successful, publicly listed giant that holds an unassailable market leadership position in its native Australia.

The only significant differences in the profile of the two companies are that A) REA has market leadership positions in other countries besides Australia and B) REA operates in a market where sellers pay to market their properties, meaning the source of each respective company's revenue fits a slightly different profile.

How did the markets react?

Shares of Rightmove went up by as much as 25% on Monday, the biggest intraday gain on record, boosting its market value by around £1 billion to £5.4 billion ($7.1 billion).

However, REA dropped 5.3%, the most since December 2022, amid concerns that it may have to issue stock to fund a deal at such a hefty price.

The Real Estate Consolidation Race - what does a deal mean?

Rightmove and REA both sit comfortably in the "VIP lounge" of real estate giants worldwide, alongside Zillow and CoStar in the United States, Cian in Russia, Beike in Chaina, Hemnet in Sweden and ImmoScout24 in Germany.

Combining the two would create, undoubtedly, the most powerful global real estate company in the world across many metrics including profitability, market share across multiple continents, potential shareholder value and, more importantly, buying power.

In layman's terms, a successful takeover is unprecedented, an industry-shifting move that would probably start a chain reaction of mergers and acquisitions as powerful entities like the would-be newly-formed "REA-Move" and the American CoStar Group hoover up available real estate marketplaces around the world one by one.

Consolidation is already happening in the industry. For example, REA specifically holds a market leadership position via REA India (housing.com and PropTiger), among other investments.

Meanwhile, American commercial real estate giant CoStar already has an international footprint with CEO Andy Florance on the record saying the Group wants to flex its financial muscles by making more than one major acquisition in Europe (it already bought British challenger portal OnTheMarket in 2023 and is certainly sniffing around for its next acquisition).

Another market leader with an international presence is PropertyGuru Group, which is currently under offer for privatisation by EQT for over $1 billion.

Other major conglomerates with international marketplaces include Adevinta, Digital Classifieds Group, and the Baltics Classifieds Group,

If REA does decide to pull the trigger on this momentous deal, the race for a global superpower in real estate will be well and truly underway.